Long-established in the Utilities - Independent Power Producers industry, NextEra Energy Partners LP (NEP, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 16.88%, juxtaposed with a three-month change of -32.54%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of NextEra Energy Partners LP.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 6/10
- Growth rank: 3/10
- GF Value rank: 10/10
- Momentum rank: 2/10
Based on the above method, GuruFocus assigned NextEra Energy Partners LP the GF Score of 64 out of 100, which signals poor future outperformance potential.
NextEra Energy Partners LP: A Snapshot
NextEra Energy Partners LP, with a market cap of $3.64 billion and sales of $1.22 billion, operates in the clean energy sector. It owns interests in wind and solar projects in North America, as well as natural gas infrastructure assets in Texas. The renewable energy projects are fully contracted, use industry technology and are in regions that are favorable for generating energy from the wind and sun. Its natural gas pipelines in the portfolio are all strategically located, serving power producers and municipalities in South Texas, processing plants and producers in the Eagle Ford Shale, and commercial and industrial customers in the Houston area. Renewable energy sales generate maximum revenue for the company.
Financial Strength Analysis
NextEra Energy Partners LP's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0.39 positions it worse than 94.62% of 316 companies in the Utilities - Independent Power Producers industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Scoreis just 0.43, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.09 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 8.51, which is above Joel Tillinghast's warning level of 4 and is worse than 72.06% of 315 companies in the Utilities - Independent Power Producers industry.
Growth Prospects
A lack of significant growth is another area where NextEra Energy Partners LP seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -0.6 per year over the past three years, which underperforms worse than 74.66% of 363 companies in the Utilities - Independent Power Producers industry. Over the past five years, NextEra Energy Partners LP has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -5.5, while the five-year growth rate is at -6.8. Lastly, NextEra Energy Partners LP predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While NextEra Energy Partners LP has a commendable history in the Utilities - Independent Power Producers industry, its current financial and growth indicators suggest that it may struggle to maintain its past performance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
